In this Health Policy Online brief, John Holahan and Alan Weil examine the changes in state and federal incentives and options that would likely take place if Medicaid is transformed from an entitlement program into a block grant. They find that such a move would discourage expansions of the program, increase incentives to contract, lock in the current inequities in federal payments across states, add only marginally to the flexibility states already have, and shift risk to the level of government less able to absorb it.